How do we work out the value for stock? We count the number of items (stocktake) and multiply it by the cost of each stock item. How do we work out the.

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Presentation on theme: "How do we work out the value for stock? We count the number of items (stocktake) and multiply it by the cost of each stock item. How do we work out the."— Presentation transcript:

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We use which ever is lower – the cost of buying the stock or the selling price.

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This complies with Conservatism – recognising a loss (Stock Write Down) as soon as it happens.

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Lower of Cost and Net Realisable Value Cost = the total of the cost of purchase plus the cost incurred to get it ready for resale But what are these costs?

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Any cost incurred with getting stock ready for resale i.e. buying costs Customs Duty or Export fees –The cost of getting stock into the country from overseas. Freight in –The cost of transporting the cost from the supplier to the business. Modifications –Any changes made to a particular line of stock - just like when we buy a Non Current Asset and installation is included in the Historical Cost

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Buying costs are divided into: Product Costs –Can be linked on ONE line of stock –Are recorded on the STOCK CARDS –Reported in the Profit & Loss Statement as part of COST OF SALES Period Costs –Can be linked to MANY lines of stock –Are recorded in their own LEDGER ACCOUNT –Reported in the Profit & Loss Statement UNDERNEATH Cost of Sales

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Product Costs are related to one line of stock Modifications to one line of stock Cartage or Freight on one line of stock

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Period costs relate to many stock lines The Cartage or Freight for two or more stock lines per delivery. Insurance on all the stock. Modification to more than one line of stock.

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All Buying Costs are reported in the Profit & Loss Statement Profit & Loss Statement Revenue Sales Less Cost of Goods Sold Cost of Sales (including Freight for one line of stock) Freight (applies to a number of lines of stock)

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Lower of Cost and Net Realisable Value NRV = the estimated proceeds of sale (selling price) less any costs associated with selling the stock

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Any costs associated with selling the stock or selling costs Commissions to salesman –The salesman is paid a bonus for every item of stock he sells Advertising or promotion –Which relates to a particular line of stock

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Balance Sheet Current Assets Stock will be reported at the lower figure e.g. Stock at start less $300

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Stock Gains Reminder Stock gains are to be determined by using the lowest available price in the balance column of the stock card, as required by the Conservatism accounting principle so stock is not overstated in Stock control. When there is stock purchases at two different prices, look in the balance column and use whichever value is lowest.